Managing “Joint Employment” or “Co-Employment” Risk

by Mark Zisholtz, Vice President, Workforce Management and Compliance Solutions at HireGenics


Note from the Editor-in-Chief:  When we began planning the initial articles for this blog, I wanted to address a practical topic that would help procurement professionals and their supply chain partners better understand a risk area that tends to be mismanaged or misunderstood: the “joint employment” or, as it is commonly referred to in this industry, the “co-employment” of contingent workers (“joint employment” is a legal term that is widely used to describe most types of co-employment relationships and, for purposes of this article, it is sufficient to assume that “joint employment” and “co-employment” mean the same thing). 

All too often I hear procurement professionals mention “co-employment” and, in the same breath, point out that their supply chain partner was handling or mitigating this issue.  However, many of these supply chain partners are not doing enough, either because they do not truly understand the risk or the law, or they do not commit the resources to execute an effective management strategy.  Hence, end customers do not know how much risk they actually face.  Therefore, I decided to write this article, a primer on managing joint employment or co-employment risk, to launch this contingent workforce blog.   


Introduction

“Joint employment” means that a worker is employed by two or more employers at the same time.  Stated differently, if two independently operating entities jointly exercise enough of the attributes of an employer with respect to a particular worker, both of those entities will be considered joint employers of that worker for purposes of various employment laws.

In the indirect workforce industry, “joint employment” is an ongoing existential dilemma.  Workers who are employed as W-2 employees by a supply chain partner and assigned to perform services for an end customer are, in many cases, “jointly employed” by the supply chain partner, on the one hand, and the end customer, on the other hand (these workers shall, for purposes of this blog article, collectively be referred to as “On-Site W-2 Contingent Workers”)[1].  Neither the size of the supply chain partner, the status of the partner as a prime or sub, nor whether the partner provides services through an MSP or other outsourced workforce manager, matters for purposes of this analysis.  Yet, the end customer rarely wants to deal with the inevitable fallout of a joint employment determination because it undermines the very nature of a viable long term contingent workforce strategy.

If joint employment exists, then both joint employers are responsible for resulting liability under various employment laws, such as the Fair Labor Standards Act (covers wage and hour violations)(“FLSA”) and Title VII of the Civil Rights Act of 1964 (covers discrimination and retaliation on the basis of race, color, religion, sex, or national origin)(“Title VII”).[2]  By way of contrast and as a means to highlight the impact of a joint employment relationship, if an On-Site W-2 Contingent Worker were not deemed to be jointly employed by the end customer, those various employment laws, such as the FLSA and Title VII, would not apply to the end customer with respect to that worker.[3]

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1099/Independent Contractor Misclassification: The Development and Rise of the Department of Labor’s “Economic Realities Test”

by Brandon Pavley, Legal Counsel and Compliance Associate at HireGenics


Introduction

In a contingent workforce arena, the proper classification of a worker as an “employee” or an “independent contractor” (“IC”) is critical for purposes of determining whether various employment laws apply to an end customer.  However, because of the circular or largely unhelpful definitions of “employ”, “employer” and “employee” found in these laws – e.g., the Fair Labor Standards Act (“FLSA”) defines “employee” as “any individual employed by an employer” – judges and governmental agencies have attempted to clarify the definitions or even provide their own definitions and standards.  The outcome has been a mixed bag and a source of frustration for many employers, especially those in the indirect workforce industry.

Traditionally – dating from the mid-1930s through present – when challenged with making the determination of whether a worker should be classified as an “employee” or an “independent contractor,” courts used the common law agency test (commonly referred to as the “right-to-control test”).  Under the right-to-control test, courts assess the degree of control an end customer exercises over how and when an IC performs his or her work.  If the end customer is deemed to exercise too much control over the how and when, then the IC would be reclassified as an “employee” of the end customer for purposes of various employment laws.  However, in response to the creation of the FLSA, the United States Department of Labor (“DOL”) recognized a need to evolve the standards of the right-to-control test.  Ultimately, a federal court from Kentucky, in Walling v. Woodbine Coal Co.,[1] agreed with the DOL and determined that the right-to-control standard was not comprehensive enough for IC’s to be classified as an “employee” and accepted the DOL’s proposed standard known as the “economic realities test”. The economic realities test broadened the right-to-control test by not only considering the degree of control that the end customer exercises, but also takes into account the degree to which the IC’s are economically dependent on the end customer.

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